Return Security Deposit?

[Emmanuel Ivory]

Hi BP!

My brother and I are house hacking our home. We found an applicant who completed an application, and paid a security deposit 3 weeks ago and has yet to sign the lease. The young man is a student and did not want to sign lease until closer toward the start of school, later this month. The applicant was expected to move-in 10 days from now. Today the applicant stated that he could not move-in because of tuition cost and his job suddenly being unable. I thanked him for being open and wished him the best. 

But he asked for his security deposit back since he has not moved-in nor signed the lease. I do not think he is owed the security deposit since we turned away other applicants and held his room for over 3 weeks now. So what do you think, do we have to return his security deposit?

We are new to real estate and being landlords. I just wanted to ask for a second opinion before telling him we cannot return security deposit. We are in the Sacramento, CA region.